FTX Crypto King Sam Bankman-Fried Charged With Fraud: “Built A House Of Cards”, SEC Says – Update
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UPDATED, 8:25 AM: The Securities and Exchange Commission today said FTX founder and ex-CEO Sam Bankman-Fried “built a house of cards” in charging him with eight criminal counts of fraud and money laundering for cheating about 90 U.S. investors out of more than $1.1 billion in his cryptocurrency platform.
The 30-year-old erstwhile crypto king, whose wild story is a hot commodity in Hollywood, was arrested Monday in the Bahamas. Read details of the case below, and watch prosecutors’ news conference about the indictment at end of the post.
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“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair Gary Gensler said in announcing the charges. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.
The Bankman-Fried story is the subject of a movie and TV series in the works at Apple and Amazon, respectively. Late last month, Apple was close to sealing a deal for film rights to Michael Lewis’ upcoming book about the case, with sources pegging the deal at mid-seven figures. Lewis, who wrote the sourcebooks for the movies Moneyball, The Big Short and The Blind Side, spent six months with the embattled entrepreneur before the bottom fell out for Bankman-Fried.
Meanwhile, the Russo Brothers and David Weil have set up an eight-episode scripted series about FTX and its founder at Amazon. Details about the project are TBA.
According to the SEC’s complaint, since at least May 2019, FTX, based in The Bahamas, raised more than $1.8 billion from equity investors, including roughly $1.1 billion from about 90 U.S.-based investors. In his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets.
The eight criminal counts are:
Conspiracy to commit wire fraud on customers;
Wire fraud on customers;
Conspiracy to commit wire fraud on lenders;
Wire fraud on lenders;
Conspiracy to commit commodities fraud;
Conspiracy to commit securities fraud;
Conspiracy to commit money laundering; and
Conspiracy to defraud the United States and violate campaign finance laws
The SEC said:
“The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors (1) the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund; (2) the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures; and (3) undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens. The complaint further alleges that Bankman-Fried used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.”
Separately, the U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission also announced charges against Bankman-Fried today.
“Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards,” Gensler added, “such as properly protecting customer funds and separating conflicting lines of business. It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority. To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action.”
Said Gurbir Grewal, Director of the SEC’s Division of Enforcement: “FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary ‘risk engine,’ and FTX’s adherence to specific investor protection principles and detailed terms of service. But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent,” FTX’s collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike.”
The SEC added that investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.
PREVIOUSLY, December 12: Disgraced crypto king Sam Bankman-Fried was arrested today in the Bahamas, the Justice Department said. The Attorney General’s office of the Caribbean nation said the bust was made after U.S. prosecutors formally charged the founder and former CEO of bankrupt cryptocurrency exchange FTX, whose wild story is a hot commodity in Hollywood.
Neither country’s officials offered details on the charges, but Bankman-Fried is expected to be extradited to the United States.
“As a result of the notification received and the material provided therewith, it was deemed appropriate for the Attorney General to seek SBF’s arrest and hold him in custody pursuant to our nation’s Extradition Act,” the office of The Bahamas Attorney General Ryan Pinder said today. Read the full statement below.
Valued at $32 billion by private investors earlier this year, FTX collapsed last month after rival Binance balked at a proposed merger of the crypto giants. That news sent cryptocurrency markets into freefall, and Bankman-Fried said at the time that his company was facing an $8 billion shortfall in funds due to the sudden “run” on the exchange. In three days, traders pulled some $6 billion from the platform, and it owes creditors at least $3 billion.
FTX, which had raised nearly $2 billion from investors over three years, filed for bankruptcy protection on November 11. John J. Ray III, who stepped in to lead FTX after the filing, is scheduled to testify Tuesday before the House Financial Services Committee.
A number of companies and celebrities are reported to have hefty investments in the company, while FTX also has big-ticket sponsorship deals with the likes of the Miami Heat basketball team and the Formula One squad Mercedes-AMG Petronas F1. The crypto crash led to a class-action lawsuit filed in mid-November whose defendants include Larry David and sports superstars Tom Brady and Steph Curry, among others.
The Bankman-Fried story is the subject of a movie and TV series in the works at Apple and Amazon, respectively. Late last month, Apple was close to sealing a deal for film rights to Michael Lewis’ upcoming book about the case, with sources pegging the deal at mid-seven figures. Lewis, who wrote the sourcebooks for the movies Moneyball, The Big Short and The Blind Side, spent six months with the embattled entrepreneur before the bottom fell out for Bankman-Fried.
Meanwhile, the Russo Brothers and David Weil have set up an eight-episode scripted series about FTX and its founder at Amazon. Details about the project are TBA.
Here is Pinder’s full statement on Bankman-Fried’s arrrest:
On December 12, the Office of the Attorney General of The Bahamas is announcing the arrest by the Royal Bahamas Police Force of Sam Bankman-Fried (“SBF”), former CEO of FTX’s SBF’s arrest followed receipt of formal notification from the United States that it has filed criminal charges against SBF and is likely to request his extradition.
As a result of the notification received and the material provided therewith, it was deemed appropriate for the Attorney General to seek SBF’s arrest and hold him in custody pursuant to our nation’s Extradition Act.
At such time as a formal request for extradition is made, The Bahamas intends to process it promptly, pursuant to Bahamian law and its treaty obligations with the United States.
Responding to SBF’s arrest, Prime Minister [Philip] Davis stated, “The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public and broken the law. While the United States is pursuing criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere.”
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